The Feldman File covers eBooks, publishing, new media, Internet services, consumer electronics and salsa dancing. (Okay, not salsa dancing, but it'll be interesting to see how many people looking for information on salsa dancing end up here.)

Tuesday, May 20, 2014

Yesterday, the U.S. Justice Department announced that it had settled a criminal case against Swiss bank Credit Suisse for helping U.S.
taxpayers to evade taxes by transferring funds to overseas locations. Credit
Suisse agreed to plead guilty to the charges and paid $2.6 billion, in the form
of $1.8 billion to the U.S. government, $715 million to the New York Department
of Financial Services and $100 million to the Federal Reserve. Only $670
million of the $2.6 billion went to the IRS for compensation of actual lost tax
revenues. A few Credit Suisse employees will be dismissed or reassigned, but no
one will spend a day in jail.

The settlement, as are most settlements of this type, was
announced at a self-congratulatory press conference led by Attorney General Eric
Holder. Attorney General Holder said “This case shows that no financial
institution, no matter its size or global reach, is above the law.” He also said
“a company’s profitability or market share can never and will never be used as
a shield from prosecution or penalty. And this action should put that misguided
notion definitively to rest.” Anyone who’s followed the Justice Department’s actions
since the financial collapse of 2008 knows just how untrue--in fact, how
hilarious--that statement is.

If the
target of a Justice Department investigation has vast financial assets, the
Justice Department offers or accepts a settlement that involves payment of
money to the U.S. Government in return for dismissal of all outstanding
charges. The vast majority of the time, the target doesn’t need to plead guilty
or take responsibility for anything. Even if the Department does manage to get
a guilty plea, as in yesterday’s deal with Credit Suisse, no one within the company
will go to jail. (In the Credit Suisse case, the Government prosecuted not to recover any
of the trillions of dollars lost by individuals due to financial manipulation
and malfeasance leading up to the Great Recession. It prosecuted to recover a
few hundred million dollars of lost Federal taxes.)

On the other hand, if the Justice Department decides to go
after someone without vast financial resources, or if it has to defend its own
actions, its tactics are dramatically more aggressive. In fact, after decades
of fighting organized crime, the Justice Department seems to have adopted organized crime’s tactics. It’s gotten to the point where it’s almost
impossible to determine who the “good guys” are, and a scorecard doesn’t help.

If the Justice Department’s target is an individual without large financial assets, it uses intimidation in the form of threats
of prosecution with trumped-up charges and the potential of decades of prison
to get the subject to plead guilty to a reduced set of charges. It does that
even (or especially) if it knows that it’s unlikely to get a conviction if the
case goes to trial. A good example is Aaron Swartz, who downloaded a huge cache
of academic journal articles, most of which had been written with taxpayer
dollars and should have already been in the public domain. However, the
Justice Department charged Swartz with two counts of wire fraud and 11
violations of the Computer Fraud and Abuse Act. The charges came with a maximum
of a $1 million fine and 23 years in prison, which the U.S. Attorney told Swartz’s
attorney that she intended to ask for in court. After two years of government
harassment and two days after a plea bargain offered by his lawyer was rejected
by the U.S. Attorney, Aaron Swartz committed suicide. Rather than discipline or
dismiss the U.S. Attorney who refused the plea bargain, Attorney General Holder
commended her.

If the target might be helpful in testifying
against a bigger target, the Justice Department uses the same tactics, often
stretching out the case for years in order to destroy the reputation of the
target, eventually dropping the case before going to trial. The reputation and
business of the target cannot be reestablished with an innocent verdict, so the
individual or business is destroyed. Last week, Bloomberg reported on three previously unknown philanthropists who have created a $9.7 billion trust that’s
bigger than the Carnegie and Rockefeller Foundations combined and is bigger
than all of them except the Gates, Ford and Getty foundations. The three
philanthropists were once part of a company called Princeton-Newport Partners, the
world’s first quantitative hedge fund. Four Princeton-Newport managers were
charged with racketeering and tax fraud (the three philanthropists were never
charged with anything.) The Justice Department’s goal was to get the
Princeton-Newport managers to testify against Michael Milkin. There’s no
evidence that the Justice Department could have won a conviction against the
Princeton-Newport employees if the case had gone to trial. The Justice
Department eventually dropped all charges, but the reputation of
Princeton-Newport was destroyed and the company collapsed.

If the Justice Department itself or the U.S. Government is the target
of a civil or criminal case, it actively withholds evidence and lies to the
court. A good example is the ACLU’s case last year in front of the U.S. Supreme
Court to have the FISA Amendments Act ruled unconstitutional. The Supreme Court
never ruled on the constitutional issues, instead ruling that the ACLU and its
plaintiffs didn’t have standing to pursue the case—they weren’t affected by the
Government’s actions because the Government wasn’t surveilling them. The Guardian reports that the Supreme Court came to that conclusion because the
Justice Department told it “1) that the NSA would only get the content of
Americans' communications without a warrant when they are targeting a foreigner
abroad for surveillance, and 2) that the Justice Department would notify
criminal defendants who have been spied on under the FISA Amendments Act, so
there exists some way to challenge the law in court.” Both of these statements
were outright lies.

In the case of #1 above, one of Edward Snowden’s revelations was that the NSA engages
in what the agency calls “about” surveillance, in which it captures an enormous
number (trillions) of emails and text messages between anyone in the U.S. and
anyone outside the country, whether or not either party is in any way under
investigation. Thus, the NSA got the content of Americans’ communications
without a warrant AND without a targeted foreign party. In the second case,
last July, the Justice Department admitted “that the government hadn't been
notifying any defendants they were being charged based on NSA surveillance,
making it actually impossible for anyone to prove they had standing to challenge the FISA Amendments Act as
unconstitutional.” In most cases, the Justice Department acknowledges and
alerts the court in question when it has given false statements or presented
false evidence, but in this case, the Justice Department has refused to do so.

The Guardian explains what Attorney General Holder’s Justice Department has
instead done, which is to deny its behavior and confuse the issue:

” The government's response, instead, has
been to explain why it doesn't think these statements are lies. In a letter to
Senators Ron Wyden and Mark Udall that only surfaced this week, the government
made the incredible argument that the "about" surveillance was
classified at the time of the case, so it was under no obligation to tell the
Supreme Court about it. And the Justice Department completely sidestepped the
question of whether it lied about notifying defendants, basically by saying
that it started to do so after the case, and so this was somehow no longer an
issue.”

In the FISA Amendments case, by any measure, the Justice Department should have at
least been disciplined by the Court for deliberately lying, but nothing is
going to happen. If the Justice Department can lie to the Supreme Court with
impunity, it can lie to Congress, targets of prosecution and the American
people with equal impunity. In fact, after looking at these cases and many
others, it’s difficult to distinguish between the Justice Department’s actions
and what it accuses its targets of.

The Justice Department has played a critical role for decades in civil rights,
prosecution of organized crime and political corruption. It’s an essential part
of our legal system, and I’m the last person who would argue that we don’t need
it. However, we need a Justice Department that’s worthy of the people of the
United States, and today, we don’t have that.